Thank You

Error.

Citigroup may be one of the world's largest financial institutions, but its private-banking division thinks smaller is better -- at least when it comes to the number of clients it serves. The bank is actively shunning all but the very wealthiest of clients as it shifts from seeing how many people it can handle to how it can best serve the needs of those with assets of $25 million or more.

"We have gone from being a supermarket, a challenging business model and one we ultimately were not successful in, to one where the private bank serves [wealthy individuals] in an institutional manner," says Peter Charrington, CEO of Citi Private Bank's operations in North America.

The most conspicuous sign of the new strategy came in June 2009, when Citigroup sold its Smith Barney retail and mass-affluent brokerage and advisory business to Morgan Stanley. Rather than rebuild anything remotely like that, Charrington, named to his post just as the deal was completed, has focused intently on true, high-end private banking, offering caviar-to-cognac service to the ultrarich.

The big shrink could scarcely be bigger. Citi's U.S. wealth-management business now has about 47,000 client relationships, down from 4.2 million in 2007. It has 173 bankers, down from 13,000 brokers and advisors. Assets under management stand at $78 billion, hardly the towering $1.3 trillion of Smith Barney days. At last count, the bank just barely made it into the top 10 of U.S. wealth managers.

Turning all the attention to the ultrarich looks to have made a big difference in service quality. "You need to know the type of people you can't serve" as a private banker, Charrington says.

Peter Charrington
Evan Kalka for Barron's

The thinking is that the value-added ingredient of private banking tends to be diluted when it's offered alongside a broader range of product offerings made available to individuals and families who, though affluent, can't boast tens of millions of dollars' worth of investible assets. "You get the 'lowest common denominator' effect," Charrington says. Even if that isn't always true in practice, the private bank would have to fight the perception among the rich that they aren't really the priority.

CHARRINGTON CERTAINLY HAS HAD his share of perception problems. When he moved from the private bank's London offices to take up his new job in New York, the financial crisis was lingering and clients openly fretted about the parent company's shaky condition.

"You can't assist private clients with their finances if you are having a conversation every day about the health of your own organization," he says.

There was indeed cause for concern. Citgroup required several infusions totaling about $45 billion from the U.S. government, making the Treasury Department one of its largest shareholders until late 2010, when the last part of the government's stake was sold. It is still settling legal wrangles with the government and consumers over its mortgage-banking practices. But, in a major sign of strength, the bank has increased its capital cushion beyond the requirements of the global banking industry.

Charrington, 40, is a Citigroup lifer who began working for the British division of the private bank back in 1994, immediately after his graduation from Oxford University.

Lately, emboldened by the parent company's improved health, he's been scooping up fresh talent: He has recruited top-performing groups of wealth managers from other banks, such as Barbara McCollum's team from Wilmington Trust, Nancy Pellegrino from BNY Mellon and Mark Connally from Deutsche Bank.

The unit also has been helped by some sharp calls on the markets. In January of last year, Richard Cookson, the private bank's chief investment officer, urged clients to cut their exposure to emerging-market stocks, at a point when a majority of his peers were arguing that the asset class was one of the few likely to outperform. Cookson's call proved prescient; emerging markets as a group fell 20% for the year. Earlier, in April 2010, Cookson put out the word to steer clear of any exposure to debt or equity markets on the periphery of the eurozone; Greece, Italy and others went on to crater. For this kind of advice and other private-banking services, clients pay anywhere from 0.5% to 1.25% on assets under management.

The bank does provide plenty beyond stocks and bonds. For instance, Citi has been offering exclusive opportunities to invest directly in infrastructure projects in China and Brazil. Those kind of deals appeal to the bank's "insti-viduals," as the industry calls investors who are so monied that they resemble institutions.

Already, the bank claims to serve three of every 10 North American billionaires -- and Charrington has his eye on more. That's one area where he certainly isn't thinking small.